What I’m Watching This Week – 7 January 2019

Stocks posted solid gains by the close of the first week of the new year. A favorable jobs report helped push the benchmark indexes listed here higher last Friday, as stocks recovered from an ominous start at the beginning of the week. Helping ease investors’ fears of a slowing economy, Fed Chair Jerome Powell indicated economic data is pointing to a good start to the economy in 2019, but, more importantly, the Federal Reserve is amenable to making adjustments if necessary. The small caps of the Russell 2000 led the way last week, followed by the Nasdaq and the Global Dow. The large caps of the S&P 500 and the Dow also advanced by more than 1.50%.

Oil prices advanced slightly last week, closing at $48.26 per barrel by late Friday, up from the prior week’s closing price of $45.07 per barrel. The price of gold (COMEX) increased last week, closing at $1,286.70 by last Friday evening, up from the prior week’s price of $1,283.10. The national average retail regular gasoline price was $2.266 per gallon on December 31, 2018, $0.055 lower than the prior week’s price and $0.254 less than a year ago.

Market/Index

2018 Close

Prior Week

As of 1/4

Weekly Change

YTD Change

DJIA

23327.46

23062.40

23433.16

1.61%

0.45%

Nasdaq

6635.28

6584.52

6738.86

2.34%

1.56%

S&P 500

2506.85

2485.74

2531.94

1.86%

1.00%

Russell 2000

1348.56

1337.92

1380.75

3.20%

2.39%

Global Dow

2736.74

2718.19

2772.41

1.99%

1.30%

Fed. Funds target rate

2.25%-2.50%

2.25%-2.50%

2.25%-2.50%

0 bps

0 bps

10-year Treasuries

2.68%

2.71%

2.66%

-5 bps

-2 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Note: Due to the government shutdown, some economic reports are unavailable. If and when information is released, it will be included in the corresponding What I’m Watching This Week report.

There were 312,000 new jobs added in December, but the unemployment rate rose 0.2 percentage point to 3.9%. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade. The number of unemployed persons increased by 276,000 to 6.3 million. Comparatively, the unemployment rate was 4.1% and the number of unemployed was 6.6 million in December 2017. The labor force participation rate was 63.1%, and the employment-population ratio was 60.6% for the third consecutive month. The average workweek increased by 0.1 hour to 34.5 hours in December. Average hourly earnings rose $0.11 to $27.48. Over the year, average hourly earnings have increased by $0.84, or 3.2%.

Purchasing managers noted a drop-off in confidence among manufacturers in December, with the degree of optimism dipping to the lowest point since October 2016. The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.8 in December, down from 55.3 in November. Overall, manufacturers’ optimism and production fell to their lowest respective levels in 15 months. Job creation sputtered to an 18-month low.

The report from the Institute for Supply Management® followed the Markit results. The December PMI® registered 54.1%, a decrease of 5.2 percentage points from the November reading of 59.3%. The New Orders Index registered 51.1%, a decrease of 11 percentage points from the November reading of 62.1%. The Production Index registered 54.3%, 6.3 percentage point decrease compared to the November reading of 60.6%. The Employment Index registered 56.2%, a decrease of 2.2 percentage points from the November reading of 58.4%.

For the week ended December 29, there were 231,000 new claims for unemployment insurance, an increase of 10,000 from the previous week’s level, which was revised up by 5,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 22. The advance number of those receiving unemployment insurance benefits during the week ended December 22 was 1,740,000, an increase of 32,000 from the prior week’s level, which was revised up by 7,000.

Eye on the Week Ahead

Can the market sustain its push upward, or was last week merely the result of investors taking advantage of lower stock prices? If the government shutdown ends, we should see many economic reports come out this week, including the latest releases on international trade, the federal budget deficit, and the Consumer Price Index.